The city of Hemet (Hemet) submitted its corrective action plan on August 2, 2016, in response to the audit report titled City of Hemet: Its Ongoing Budget Deficit and Organizational Inefficiency Threaten Its Financial Stability and Delivery of Public Services (2015-806) issued by the California State Auditor as part of its high-risk local government agency audit program. Hemet subsequently submitted a revised corrective action plan on August 30. After reviewing the revised corrective action plan, we prepared the following assessment of Hemet’s action items to address the high-risk areas we identified, as referenced on page v of our report. Many of the activities Hemet discusses in its plan are ongoing with expected completion in 2017. We will review the city’s progress in its next update, due in February 2017, and will evaluate whether to remove the high risk designation from the city at that time.

Although the city states that it will continue to seek efficiencies for the reduction of expenditures and opportunities for enhancing ongoing revenue, its corrective action plan does not contain specific details pertaining to how it would reduce expenditures or enhance revenue. As we note on page 5 of the audit report, Hemet’s expenditures have exceeded revenue for eight of the last nine years. As referenced on page 9, our analysis of the five-year projection found that expenditures are expected to continue to exceed revenue for each of the next five years.

Hemet indicates that it plans to revise its five-year projection at least annually and when significant changes to revenue or expenditures are identified. Given that the five-year projection was prepared in October 2015, we would expect to see the annual revision as part of the city’s next update to its corrective action plan, along with detailed information on how it is addressing its ongoing deficit.

Rising Pension Costs

California State Auditor’s Assessment Status:

Pending

Hemet states that it is working with the California Public Employees’ Retirement System (CalPERS) to explore options to reduce its pension costs. As we note in our report on page 12, if CalPERS investment returns are lower than projected, as has occurred in recent years, Hemet’s annual payments would increase. In its next update, we anticipate that the city will be able to report on its progress in pursuing an option that will reduce its pension costs.

Use of City-Supported Library by Nonresidents

California State Auditor’s Assessment Status:

Pending

Hemet states that it will pursue a partnership agreement for a regional library in partnership with Riverside County and the City of San Jacinto, but did not describe how the partnership would affect its existing library. Page 13 of our audit report references that nearly half of the library’s patrons live outside of the incorporated city, and we recommended seeking legal guidance to adopt an annual library user fee structure to charge individuals other than city inhabitants and nonresident taxpayers for the use of library resources. Charging such a fee would not preclude nonresidents from accessing or using many of the library’s services, such as its reference material and community programs. Our estimates of revenue are based solely on nonresidents who borrowed materials from the Hemet Public Library and not focused on the use of any other library resources. Regardless of the option the city chooses, it will need to take action to address our concerns that it is spending a considerable amount of its limited general fund money on a service for which nearly half of those who benefit are nonresidents.

Significant Retiree Medical Costs and Unfunded Liability

California State Auditor’s Assessment Status:

Pending

In addition to its efforts to eliminate the expenditures of its highest-cost health care plans, the city notes that it will seek city council direction to establish a trust for other post-employment benefits and a draft funding policy. On page 16 of our audit report, we discussed city management’s intent to propose such a trust as a tool to address the city’s unfunded liability. In its next update, we expect that the city will be able to show that it has moved forward with the trust.

Hemet states that it plans to conduct a conduct a comprehensive fee analysis and study the potential revenue generated by an emergency medical services first responder fee. In addition, the city plans to prepare a comprehensive staffing and implementation plan for the fire department with the immediate priority given to filling battalion chief positions. As we note on page 17 and 18 of our report, a 2015 review of the fire department found the combination of low staffing and high demand for services to be potentially dangerous and unproductive. We expect the next update to provide the outcome of the city’s efforts.

Lack of Coordinated Approach to Promote Community Engagement

California State Auditor’s Assessment Status:

Pending

Hemet states that it will explore broadcasting its city council meetings as a way to further engage with the community. It also indicates its intent to use social media to transmit city council updates to the community. Although these activities could increase community engagement, they do not constitute an organized community engagement strategy. We would expect the city to report on its coordinated strategy during its next update.

Inefficient Structure of City Government

California State Auditor’s Assessment Status:

Pending

Hemet states that it plans to begin a comprehensive organizational analysis in September 2016 and conduct a work study of staff implementation of the organizational analysis in May 2017. We note in our report on pages 22 through 26 several specific actions the city could take to increase the efficiency of its organization. We expect its next update to include the city’s progress on developing its plan.

Turnover of Key Positions and Lack of Consistent Leadership

California State Auditor’s Assessment Status:

Pending

We recommended on page 28 of the audit report that Hemet prepare a strategic plan and succession plan. Hemet states in its corrective action plan that it will complete a comprehensive organizational analysis, which will include the components of a strategic plan, and a succession plan by May 2017. During the course of the audit, the city manager had initiated strategic planning efforts and committed to completing a citywide strategic plan as we address on page 27 of our audit report. We support this commitment because without a strategic plan, the city does not have clear direction or unified goals. We look forward to Hemet addressing its strategic planning and succession planning efforts in its next update to its corrective action plan.

Inconsistencies in Outsourcing Maintenance Activities

California State Auditor’s Assessment Status:

Pending

Hemet indicates that it will review current park maintenance service levels, develop a draft request for proposals for these services, and present it to the city council by October 2016. We recommended on page 29 of our audit report that the city consider the cost and benefits of outsourcing its parks maintenance because it could result in savings between $64,000 and $301,000 annually, based on a bid by a private company. Hemet should continue with its stated efforts and summarize those results in its next update.